Nevada or Delaware Limited Liability Company (LLC) for International Business

The Nevada or Delaware Limited Liability Company (LLC) for International Business is the worst choice for a privately owned business.   Doing business in countries that have a tax treaty with the U.S. requires the use of a corporation.  In some of the newer treaties a partnership gets some tax advantaged if you can get the IRS to issue a tax treaty certificate. 

The domestic limited liability company is an American entity.  It is not classified as a corporation for international business or for domestic business.    Making matters more awkward, the LLC tax classification does not fit into the concepts found in tax treaties. 

The Nevada or Delaware Limited Liability Company (LLC) for International Business May Not Protect You form a Creditor.

Since other countries do not have the U.S. tax concept of the LLC, you may not get protection for a creditor.   

And there is more bad news.  For example, while the Dutch has a fantastic tax treaty with the United States, the American small business owner can fail to get all of the intended tax benefits.   The major tax treaty benefit is avoidance of paying tax in the foreign country and not filing a tax return with the foreign government.

Here is the international tax problem with the LLC

The permanent establish article does not reference a limited liability company.   The small business owner is in a risky position.   If the/she can lose the U.S. foreign tax credit if they fail to pay the foreign country’s tax when the tax is due.   For example, you are based in the Netherlands and you decide not to file a dutch income tax return for the LLC for year 2017,

In 2021, the Dutch audit you.  Since you never filed a return, they can charge you the tax.   In 2023, you make the decision that the legal fees of fighting the tax are too expensive.  So, you pay the tax.   Since the U.S. taxable year was 2017, you are six years late in claiming the foreign tax credit.

You end up paying tax twice.  First, to the IRS in 2017 on the Dutch income.  Then in 2023, you pay the tax a second time to the Dutch government.

The Best Small Business International Tax Structure and Entity

The United States Department of Treasury decided to help the small business owner obtain the maximum tax benefits by allowing you to treat your foreign corporation as a domestic corporation.  This process is known as a domestication.    As a domestic corporation, the American can elect taxation as a subchapter S corporation.

Tax treaties give corporations permament establishment protection.  If you do pay a foreign income tax, the IRS foreign tax credit rules apply to a subchapter S corporation.  The foreign tax credit allows you to offset your IRS taxes with the tax you pay to a foreign government.

Below is a short video on the domesticated foreign corporation.  While the video is about Mexico, the same rules apply to Europe.

Cloud Continues to Disrupt Business – 1,000s of Robots Laid Off

International tax planning compares last century's tax laws to this century's business. Then , it exploits the differences.

International tax planning compares last Century’s tax laws to this Century’s business. Then, it exploits the differences.

Cloud ecommerce tax planning changes as technology changes. The U.S. Senate reported that businesses that update their tax plan are taxed at only 14%..

You have to compete with the future. Blockbuster’s demise is old news from the beginning of this century.   Just ten years later, the killer of Blockbuster is dying.   Redbox has closed (laid off) 1,000s of it robotic DVD rental kiosks in the U.S.

 In 2015, it closed all of its DVD rental kiosks in Canada.   Netflix and other video streamers are slaying the king of the DVD rental kiosks. Redbox’s $1 a night became too expensive. Netflix is $10 a month, and you can watch as many hours as you want with 50,000 choices.   With Redbox, you had to rush to the kiosks to return the DVD.

American international tax laws were written and were designed for a 1930 economy.

Offshore tax planning compares the out of date concepts in our tax laws to 21st Century business. Then, it exploits the differences.  Your tax planner must forget last century’s tax planning and learn this century’s.  Even the first ten years of this century is partly obsolete.  

If this was 2005, you would not have a smartphone. Yep, no apps.  I don’t know about you, but I use my iPhone and iPad for business more than I use my landline and my computer combined.   

With the iPhone came the  streaming of music.  If the computer server hosting the music was located in the Cayman Islands, the income would be foreign source income and not U.S. source regardless of the location of the customer.

Cloud ecommerce tax planning changes as technology changes- Look at Banking

Great tax planning sees the trends and changes.

Look at banking.   Are ATM’s the next to be laid off?  Do you want to deposit your checks like this,  in the dark watching over your shoulder?

Internet businesses can decide who is going to tax them just by using the cloud.

Internet businesses can decide who is going to tax them just by using the cloud.

Or like this- At home with a smartphone app where it is safe. By changing your business, you not only survive, but you can also completely shift your tax profile.

For example, if you distribute a product, spend some time learning about 3D printing or using a fulfillment center.   If you have an e-commerce business,  consider streaming your product versus providing a mp3 file or a pdf file.  Internet tax planning starts with shifting the source of the income.

For some, it is merely a move to Nevada or Texas to escape California or New York taxation.  For others, it is outside of the U.S., such as Canada (yes, it is an internet tax haven) or Ireland.  By the way, California tax planning and New York tax planning just became more important.  State income taxes are no longer deductible. 

if you need help with your international tax planning, then contact me at [email protected]

European Court Allows Google Ireland Billions in French Tax Avoidance

European Court allows Google billions in legitimate French tax avoidance.

European Court allows Google Ireland billions in legitimate French tax avoidance. Learn how this applies to your U.S. state income tax planning. 

With Irish Tax Planning for Ecommerce Google Avoided Taxes. The concepts in tax treaties are ancient and provide tremendous tax savings for internet businesses.  

International  E-commerce businesses can follow this Google model and avoid taxes.

Additionally, this Google model works in avoiding state income taxes in the United States.

Today’s tax treaties are based on the ides of business from the days of hard assets businesses (factories, warehouses, office buildings).   

Keeping these ancient concepts, tax treaties make legal tax avoidance is easy for an internet business and an e-commerce business. 

How Irish Tax Planning for Ecommerce Google Avoids Taxes

In the summer of 2017, the Paris Administrative Tribunal, the Court found that France could not charge Google Ireland $1.4 billion in taxes.   Google France had assisted Google Ireland in its advertising business.  However, Google Ireland’s advertising computers were in Ireland, and none were in France.

The Google victory was ruled on Ireland-France Tax Treaty (1968).  The victory reflects the flaw of the ancient permanent establishment concept found in the 2014 European Model Treaty and the American model treaty. 

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Saving Taxes in the E-commerce & the Cloud (Virtual) Computer World

cloud computer tax, tax planning, saving taxes, international tax planning,

E-commerce businesses are saving taxes with cloud computer tax planning.

E-commerce tax planning and Cloud tax planning uses unique tax laws.  As a result, saving taxes in this century’s cross-border business environment is easier than ever.  

Small businesses are saving taxes with eCommerce tax planning and cloud computer tax planning.  

The cloud has level the playing field between small business and big business.  Amazon is leading the way.

 Small businesses can benefit from cloud computer tax planning.  

Cloud tax planning allows big state and federal tax savings.  A popular term for this is “third wave” tax planning.  The second wave was most of last century and a little of the 1800s.  The first wave is from  10,000 BC to the late 1800s.  This explains the loophole.  Our tax laws were designed in the early 1900s.  While the laws are more complicated, the basis framework is unchanged.

We all have heard people say that things are not what they used to be.  This is particularly true in American business.  In 1910, electricity was not in the White House.  Cars were laughed at with jokes like “Get a horse!” 

Phones were rare, and there was no air travel.  U.S. E-commerce tax laws are written for last century’s business.  E-commerce tax planning provides significant tax savings.   Here is what has gone wrong for the Government and good for small business.

  Who is this man?    He is Robert Lee Doughton.   He was the powerful chairman of the U.S. Congressional committee that writes the tax laws.

This man designed and wrote our international tax laws. His education was only high school. His father fought with General Robert E. Lee (General of the Confederate States of America).  He was named after the General.  He was born in 1863. His view of international commerce was via steamship

In 1939, he wrote the international tax laws that govern today’s international taxation in America.[1]  Most of the congressional representatives who wrote the 1939 tax code were born before 1900.    Their view of the world was what you see in many silent movies … and so was their tax law.

Their idea of technology was steamships and the telegraph.  It is this world vision that governs how the U.S. taxes international business and investment today.

On this link, you can view my forty-minute of my presentation of the California Society of Certified Public Accountants on profiting from Congress’s failure to innovate.

Successful E-commerce international tax planning revolves around a major flaw in American tax law caused by the speed of change (more on this link).  

If you need to up the quality of your tax planning, then contact me, Brian Dooley, CPA, MBT, at [email protected]

[1] Congress renamed the tax code in 1986 to the “Internal Revenue Code of 1986.” As I wrote this, I realize that 1986 was just at the end the “second wave” of business. The tax consequences of leaving the economics of the second wave and moving into the economics of the third wave are discussed in this video.

 

UK, Sweden, Belgium, Canada, Luxembourg & Austria Citizens U.S. Tax Planning

UK, Sweden, Belgium, Canada, Luxembourg & Austria U.S. tax planning in the United States looks at the unique tax treaties for these citizens.  Below are the magical words from the Tax Treaties for the citizens of The UK, Sweden, Belgium, Canada, Luxembourg, Austria, Thailand and Tunisia:

“An individual who is a United States citizen or an alien admitted to the United States  for permanent residence (a “green card” holder) is a resident of the United States only if the  individual has a substantial presence, permanent home or habitual abode in the United States and if that individual is not a resident of a State other than the name for other country for the purposes  of a double taxation convention between that State and the name for other country.”

 UK, Sweden, Belgium, Canada, Luxembourg & Austria U.S. tax planning starts with your U.S. Visa.

Tax Treaties with these words allow U.S. resident aliens to legallyavoid U.S. income taxes on their foreign income.  

 For example,  Mr. Bond, a U.K. citizen has a substantial presence in the U.S.  He does not have a green card.  He is in the U.S. on an investor visa. Mr. Bond only pays U.S. income tax on his U.S. income.  The income from his U.K. business and all other foreign companies or investments is U.S.

Mr. Bond only pays U.S. income tax on his U.S. income.  The income from his U.K. business and all other foreign companies or investments is U.S. tax free.

IRS Publication 519 “states that the U.S. domestic rules that determine if a non-U.S. citizen is a U.S. resident do not override tax treaty definitions of residency.”

Below is our e-book of IRS Publication 519 explaining international tax planning for Sam, a U.K. citizen living in the U.S.

The IRS example discussing Sam applies to citizens of UK, Sweden, Belgium, Canada, Luxembourg, Austria, Thailand and Tunisia.    If you want the PDF version of this IRS publication, then email me at [email protected]

If you have overpaid your U.S. income taxes and want a refund, then email me, Brian Dooley, CPA, MBT, at [email protected] We work with other CPAs.